Category: Wall Street

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Photo: wikipedia.org

Today, employees don’t share in the profits or success financially the way they did the past. Forty years ago, Sears offered their sales staff commissions, bonuses and retirement plans enough for many of them to retire on $1 million in today’s equivalent dollars. Amazon recently announced raising all workers to $15 @hr, yet they are eliminating stock and bonus plans. Hourly staff will be left with little for retirement except what little they can save.

What is driving management to not share company financial success with employees, or increase investments in productivity which would support a raise in wages? One factor is Wall Street expectations of corporate management to keep the cash machine cranking full speed.

Sources: The Daily Shot, The Wall Street Journal – 10/25/18

Companies that invested in capital equipment to increase productivity or R & D to innovate were penalized by Wall Street investors driving their stock price down. Note that on the lower chart the relative performance of investment focused on capex companies versus cash return in buybacks and dividends is 6 % less and has been falling since a year ago. Executives quite often receive as much as 80 % of their compensation in stock options based on stock performance and earnings targets. Spending money on expenses by increasing wages, capital equipment purchases or innovative research reduces profits and does not provide more funding for stock purchases to drive the stock price up.

Next Steps:

Our post this past Labor Day notes how Wall Street wields power over the economy, and drives executive decisions on allocation of resources.

“Wall Street, the citadel of capital, wields supreme power focused on profit throughout our economy and control of our government. Corporations pander to financial leaders with ever higher profits manipulated by stock buybacks juicing the value of share prices. Management ensures investors are pleased with financial results using loose financial gimmicks and laying on record debt. While workers have seen their wages stagnate for 30 years since the 1980s.”

Yet, Wall Street is beginning to change with major leaders beginning to recognize the need to invest in corporations that take social responsibility and worker value as core principles.

“We need to require corporations to report on how they are building employees as assets and worker contribution to increasing company value. The next step is for Wall Street to recognize social responsibility in their investments as Blackrock, CEO Larry Fink, has in a letter to CEOs of companies in their portfolio that he will be looking beyond profit, for implementation of policies by management in sustainability and worker advancement.”

On Labor Day it is a good time to reflect on our labor force – the people who make our economy go. What has become of labor in America? Does labor hold equal power with capital? No.

Wall Street, the citadel of capital, wields supreme power focused on profit throughout our economy and control of our government. Corporations pander to financial leaders with ever higher profits manipulated by stock buybacks juicing the value of share prices. Management ensures investors are pleased with financial results using loose financial gimmicks and laying on record debt. While workers have seen their wages stagnate for 30 years since the 1980s.

Executives are handsomely compensated at 300% of the average worker’s wage. Why? They think they ‘are’ the company. At a $400 million biotech firm, this author listened to a VP extoll the value of management over workers, “we have all the power; we decide wages, allocation of resources, when and how work is done, and we can fire them anytime”. Yet, workers make the company go. Nothing works until the employees make it work. Managers don’t do the work, they manage the work that is getting done.

Managers are doing what they are compensated to do – increase profits and reduce costs. In Western accounting labor is viewed as an expense while money and machines are viewed as assets. Wait, aren’t employees assets? CEOs are always telling employees at ‘all hands’ meetings they are the companies’ most important asset. Do they treat employees that way? What about when things get tough; instead of selling equipment, moving out of buildings or reducing executive benefits they lay off employees who can least afford it. Executives need to start treating employees like they are an asset.

Maybe we need to start recognizing labor as an asset from an accounting perspective. When we label capital an asset and labor a cost we are fundamentally placing a higher value on money and a lower value on people. That framework us wrong – if anything it should be the other way around. Because people create value in corporations not money. Money does not come up with the latest innovation or new process or service – people do. We need to require corporations to report on how they are building employees as assets and worker contribution to increasing company value. The next step is for Wall Street to recognize social responsibility in their investments as Blackrock, CEO Larry Fink, has in a letter to CEOs of companies in their portfolio that he will be looking beyond profit, for implementation of policies by management in sustainability and worker advancement.

Unfortunately labor power is at an all-time low when in a great ‘boom’ economy now the 80 % in income have experienced declining wages since the Great Recession. On Labor Day we need to dig deep and renew our commitment to recognizing labor must share equally in all corporate prosperity.